Status: 03/31/2023 1:48 p.m
Customers can afford less and less for one euro, also with consequences for the retail trade. In 2023, he expects the biggest drop in sales since the financial crisis. The first shops have already had to close their doors.
The business of the German retailers is not gaining momentum because of the loss of purchasing power of their customers. In February, they turned over 0.5 percent less than in the previous month, as the Federal Statistical Office announced today. The main reason is the high food prices. Adjusted for inflation, i.e. in real terms, sales even fell by 1.3 percent.
The decline comes as a surprise: economists surveyed by the Reuters news agency had expected growth of 0.5 percent. Compared to the same month last year, the retail trade even recorded a real drop in sales of 7.1 percent.
Persistently high inflation reduces the purchasing power of consumers in Germany. People can afford less for one euro. That dampens private consumption. “Loss of purchasing power caused by inflation are causing problems for many households,” explained the Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union-affiliated Hans Böckler Foundation recently.
Prices are likely to rise faster than wages
For the fourth year in a row, workers are threatened with falling real wages, as economists forecast that prices will again rise faster than wages. “A consumer comeback is prevented above all by rising food prices,” said the chief economist at Hauck Aufhäuser Lampe Privatbank, Alexander Krüger. “In the current lean period, it is difficult to see where a turnaround in consumption will come from. High wage agreements will only provide temporary relief, as they are tomorrow’s price increases.”
Bucking the trend, real food retail sales increased in February, albeit by just 0.2 percent month-on-month. “Thus, sales in food retailing recovered slightly in the first two months of the year from the sales low in December,” emphasized the statisticians. At the end of last year it was the lowest it had been in more than eight years, which can be explained by the fact that food prices have risen by more than a fifth. In online and mail order sales, sales increased by 4.0 percent compared to the previous month.
Largest drop in sales since the financial crisis
Due to high inflation, the German retail trade is expecting the biggest drop in sales this year since the global financial crisis of 2009. Adjusted for inflation, it is likely to fall by three percent, the German Retail Association (HDE) recently predicted.
In the past few days and weeks, many retailers have felt the customers’ reduced desire to buy. This week, for example, the Osnabrück shoe retail chain Reno with around 180 branches and around 1000 employees filed for bankruptcy just six months after a change of ownership.
More than every tenth shoe shop closed its doors forever last year, reported Rolf Pangels, the general manager of the Textile Shoes Leather Goods Trade Association (BTE). Overall, according to calculations by the association, the number of shoe shops fell by 1,500 or 13 percent to around 10,000 within a year. The well-known shoe retailer Görtz also had to apply for a protective shield procedure last September.
Protective shield proceedings and slumps in sales
Peek & Cloppenburg KG Düsseldorf took this step at the beginning of this month – the increased online commitment was more of a burden than a relief. But the effects of the corona pandemic as well as rising interest rates and higher costs also played a role in the financial difficulties. A closure of the 67 houses is at least not intended according to current plans.
The retail chain Galeria Karstadt Kaufhof (GKK) is currently in the middle of a restructuring plan intended to ensure the survival of the department store chain. Nevertheless, 47 branches are to be closed, which should affect around a quarter of the almost 16,000 employees.
The online fashion retailer Zalando is also suffering from the decreasing willingness of many customers to buy. The company’s net income plummeted last year. The bottom line is that Zalando earned 16.8 million euros – after 234.5 million euros a year before. You can see changes in customer behavior, certain price thresholds for purchasing decisions have shifted, said co-managing director David Schneider. “On the one hand there is a trend towards lower price ranges, on the other hand the designer and luxury segment remains stable.” Zalando itself announced in February that hundreds of jobs were to be cut, but the company left details open until the very end.
And the Hamburg mail-order company Otto also recently reported a drop in sales of almost twelve percent in the past year. Because of the high inflation, consumers have less money in their wallets, explained Divisional Director Marc Opelt about the slump in the past year. “Accordingly, they avoid impulse purchases, do without branded products more often and put off major purchasing decisions,” says Opelt.
Traders braving the doldrums
But there are also retailers who don’t mind the reluctance of many people to buy clothing caused by inflation. This includes Germany’s largest shoe retailer Deichmannn. In 2022, the family business achieved gross sales of more than eight billion euros for the first time, even exceeding the level of the last pre-corona year 2019 by 23 percent.
“We stand for good value for money. That’s why people come to us in times of crisis,” said company boss Heinrich Deichmann. “First of all, I don’t see shoes for 120 euros here,” said the entrepreneur.
Hoping for Easter business
Retailers are now hoping for impetus from the upcoming Easter business. Revenues of 2.2 billion euros are expected, as the German trade association estimates.
“In view of the difficult environment with high inflation and the many uncertainties resulting from the Russian war in Ukraine, retail companies are hoping for good Easter business and a positive impulse for consumer sentiment,” said HDE CEO Stefan Genth. Easter is the second largest holiday-related occasion for consumption after Christmas.